MSA: Master Settlement Atrocity?

February 5, 2008 0

Cascade Commentary

Summary

While supposedly a boon for tobacco prevention efforts, the Master Settlement Agreement is just another backroom deal between trial lawyers and state officials that primarily serves their own interests. The revenue for states is not legally tied to tobacco prevention efforts, and most settlement funds are used for General Obligation Bonds for Oregon’s state budget.

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On November 20, 1998, after months of secret meetings with the National Association of Attorneys General (NAAG) and some of the biggest tobacco companies in the nation, Oregon Attorney General Hardy Meyers announced the birth of the Master Settlement Agreement (MSA). The MSA requires several large tobacco companies to limit their advertising and to contribute about $206 billion to forty-six states over twenty-five years. While supposedly a boon for tobacco prevention, the MSA is just another backroom deal between trial lawyers and state officials that primarily serves their own interests.

The premise of the agreement is that tobacco companies owe states money for raising healthcare costs because smokers are sicker than non-smokers. However, the percentage of settlement money allocated to individual states does not accurately reflect their healthcare costs. Rather, settlement funds are distributed more or less according to each state’s level of anti-smoking activism.

According to the NAAG itself: “The central purpose of the MSA was to reduce smoking, and particularly youth smoking in the USA.” Yet, this new revenue for states was not in any way legally tied to tobacco prevention. Since the agreement took effect in Oregon, for instance, no settlement money has been spent on tobacco prevention. Instead,most settlement dollars go to General Obligation Bonds, which help balance Oregon’s budget.

“Using MSA dollars to pay bond debt and to pay for smoking prevention are two mutually exclusive goals, since protecting cigarette sales ensures more settlement money for the states.”

Using MSA dollars to pay bond debt and to pay for smoking prevention are two mutually exclusive goals, since protecting cigarette sales ensures more settlement money for states. This presents a moral hazard for politicians, who are far more likely to care about raising revenue than about tobacco cessation. Quite ironically, an inherently anti-tobacco agreement has ended up hurting tobacco prevention efforts.

Although public health advocates are deservedly unhappy, other groups have become outright victims. One particular clause adopted by the states prevents“Big Tobacco” from losing their top positions in the market. Small, new manufacturers that were not part ofthe original agreement are forced either to pay into an escrow fund or to join the MSA and “voluntarily” restrict their own market share. This public-private cartel is not forbidden by law.

The other major group of victims is smokers themselves, who have had to put up with higher costs for cigarettes. They are the ones who unwittingly pay the $206 billion dollars that go to trial lawyers, state budget deficits and pork barrel spending. For them, “taxation without representation” has an all-new meaning.

The MSA is also an egregious constitutional offense because it is essentially a nationwide tax on tobacco companies, a “settlement” only in name. As such, the judicial branch was not the proper authority to conduct the deal. Levying taxes is the responsibility of the legislative and executive branches, which were circumvented at both the federal and state levels. After Oregon Attorney General Hardy Meyers conveniently announced the deal on a Friday before Thanksgiving weekend, it took about a week for Judge Anna J. Brown to approve the agreement. No members of the legislature were consulted, and the few voices of opposition from the public health and legal communities were ignored.

“The MSA is also an egregious constitutional offense because it is essentially a nationwide tax on tobacco companies, a ‘settlement’ only in name.”

The truly frightening aspect of the Master Settlement Agreement is thattrial lawyers and attorneys general are not satisfied with their victory over tobacco. Companies like McDonald’s are now under attack, and with them, our ability as citizens to make simple choices as consumers.

An ideal outcome for Oregon would be to withdraw from the MSA with the support of legislators, the governor and the public. Yet, such an outcome is unlikely, since politicians have become addicted to using the MSA as a cash cow.

However, nothing stops us from setting more realistic goals. At the very least, we can demand that government spend settlement money on tobacco prevention, as originally promised. We can also do much to change the future by reversing the trend toward judicial activism. As citizens we must insist on transparency in the judicial branch of government, as in the others, and put our votes where our mouths are by electing public officials who understand the value of democratic decisions.

Daniil V. Davydoff is a research associate at Cascade Policy Institute, Oregon’s free market think tank. A student of international political economy and music at the University of Puget Sound, he completed this Commentary as part of his research internship at Cascade.

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